form10qexh103_121409.htm


     

    EXHIBIT
10.3

     

     

    SECURITY
AGREEMENT

     

    THIS
SECURITY AGREEMENT (the “Agreement”) is made as of October 30, 2009, by Elecsys
Corporation, a Kansas corporation (“Debtor” ), whose mailing address is 846 N.
Mart-Way Court, Olathe, Kansas 66061, in favor of UMB Bank, N.A., a national
banking association (together with its successors and assigns, “Secured Party”),
whose mailing address is 1010 Grand Boulevard, Kansas City, Missouri
64106.

     

    PREMISES

     

    WHEREAS,
Debtor and Secured Party have entered into a Secured Loan Agreement of even date
herewith (the “Loan Agreement”), pursuant to which Secured Party may extend
revolving credit to Debtor in a principal amount of up to Six Million and
No/100th
Dollars ($6,000,000.00) (the “Principal Amount”) pursuant to the terms and
provisions of that certain Secured Revolving Credit Note dated of even date
herewith executed by Debtor payable to the order of Secured Party (the “Note”);
and

     

    WHEREAS,
Debtor has agreed to grant a Security Interest (as hereinafter defined) in the
Collateral (as hereinafter defined) to Secured Party to secure the Obligations
(as defined in the Loan Agreement) in accordance with the terms and conditions
set forth herein;

     

    NOW,
THEREFORE, in consideration of the premises set forth above, and other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, and intending to be legally bound, Debtor represents, warrants,
covenants, and agrees with Secured Party as follows:

     

    1.           Definitions.  All
capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Loan Agreement.

     

    2.           Security
Interest.  Debtor hereby BARGAINS, SELLS, GRANTS, CONVEYS,
TRANSFERS, PLEDGES, and ASSIGNS to Secured Party a security interest (the
“Security Interest”) in all of Debtor’s business assets, including without
limitation, all Accounts and Inventory, whether now existing or hereafter
arising, and all proceeds thereof and all records pertaining to all of the
foregoing in whatever manner kept (collectively, the “Collateral”), to secure
the complete and timely payment, performance or discharge of all of the
Obligations and covenants of Debtor under this Agreement, the Loan Agreement,
the Note, and all modifications, substitutions, extensions and renewals of each,
whether absolute or contingent, liquidated or unliquidated, existing now or
arising in the future.  The Security Interest shall be effective with
respect to each item of Collateral for so long as any Obligation remains
outstanding, regardless of whether Debtor becomes the owner of such Collateral
prior to or contemporaneously with or subsequent to the incurring of any
Obligations.  As used herein, the terms “Accounts” and “Inventory”
have the meanings ascribed thereto in the Loan Agreement.

     

    3.           Representations
and Warranties.  Debtor expressly represents and warrants to
and covenants with Secured Party that, for so long as the Security Interest
shall remain in effect:

     

     

     


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    (a) 
Debtor has, or upon acquisition will have, and at all times until disposed of in
accordance with the terms hereof, will maintain, good and marketable title to
the Collateral, free and clear of any lien, pledge, security interest, or other
encumbrance except (i) the Security Interest; (ii) current and nondelinquent
taxes or taxes being contested as provided by Governing Law (defined below) in
good faith and by appropriate legal proceedings in a manner which, in Debtor’s
reasonable judgment, will not jeopardize Secured Party’s Security Interest, and
(iii) liens arising in the ordinary course of business for sums not overdue or
sums being contested in good faith and by appropriate legal proceedings in a
manner which, in Debtor’s reasonable judgment, will not jeopardize Secured
Party’s Security Interest, and Debtor warrants and will defend title to and
possession of the Collateral at Debtor’s expense against all claims or demands
of all persons other than Secured Party.

     

    (b)           No
financing statement (or other notice of any lien, security interest or
encumbrance) covering any of the Collateral is on file with any governmental
official or authority, or has been or will be delivered by Debtor to any person
other than Secured Party without the prior written consent of Secured Party,
which consent shall not be unreasonably withheld.

     

    (c)           The
execution and delivery of this Agreement shall not, immediately or with the
passage of time, the giving of notice, or otherwise, constitute a breach of or
default under any term or provision of, or trigger the creation of a security
interest in any of the Collateral (other than the Security Interest) pursuant
to, or accelerate the obligations of Debtor under, any contract, mortgage, deed
of trust, indenture, lease, license, permit, agreement or other instrument to
which Debtor is or may become a party or by which Debtor or the Collateral is or
may be bound or affected.

     

    (d)           Debtor
shall:

     

    (i)           pay
on a timely basis all
taxes, assessments and other Federal, State or local governmental charges and
penalties levied or assessed upon or against any Collateral or upon or against
the creation, perfection or continuance of the Security Interest, provided that
no such taxes, assessments, charges or penalties need be paid if the same are
being contested in good faith by appropriate proceedings diligently instituted
and conducted;

     

    (ii)           upon
prior written notice during business hours, permit Secured Party to examine or
inspect any Collateral, wherever located, to examine, inspect and copy Debtor’s
business and financial records pertaining to the Collateral, and submit to
Secured Party such periodic reports concerning the Collateral as Secured Party
may, from time to time, request;

     

    (iii)           promptly
notify Secured Party of any material loss of or material damage to any
Collateral or any Event of Default as defined in the Loan
Agreement;

     

    (iv)           not
use or keep any Collateral, or permit it to be used or kept, for any unlawful
purpose or in violation of any law applicable to such Collateral, or  in such a way as would
limit or void any insurance maintained on any portion of the
Collateral;

     


    
      
         


      

      
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    (v)           not
conduct business under any name other than that given above, nor change or
reorganize the type of entity under which it operates, except upon written
notice to the Secured Party within thirty (30) days of such change;

     

    (vi)           perform
and comply with all the terms and conditions of the Note;

     

    (vii)           perform
and comply with all the terms and conditions of the Loan Agreement;

     

    (viii)           do
and perform all acts and things and execute all documents which Secured Party in
its reasonable discretion deems necessary or appropriate to perfect, renew, or
give notice of the Security Interest, including without limitation the execution
and filing of such financing or continuation statements, or amendments thereto,
as Secured Party may request;

     

    (ix)           notify
Secured Party immediately of any legal process levied against any of the
Collateral or Debtor or any other event which materially and adversely affects
or may materially and adversely affect the value, use or possession of the
Collateral or any of the rights of Debtor or Secured Party in relation to any of
the Collateral;

     

    (x)           except
as provided in the Loan Agreement, preserve in existence all of its rights,
franchises, licenses, permits and privileges necessary to its operation, and not
dissolve, merge, or consolidate into another entity or sell, lease, transfer, or
otherwise dispose of all or a substantial part of its assets, without the prior
written consent of Secured Party; and

     

    (xi)           maintain
with insurers admitted to do business in the state where the Collateral is
located and otherwise reasonably acceptable to Secured Party, insurance on the
Collateral against loss by fire, theft, lightning, tornado, and other perils and
hazards reasonably covered by standard extended coverage endorsement in an
amount equal to full replacement value, and otherwise reasonably acceptable to
Secured Party, naming Secured Party as an additional insured and loss payee and
providing that there shall be no cancellation or modification thereof with less
than thirty (30) days prior written notification to Secured Party.

     

    4.           Disposition
of Collateral.  So long as there is no Event of Default under
the Loan Agreement, Debtor may, in accordance with the other terms and
conditions contained herein, sell or otherwise dispose of the Collateral in the
ordinary course of business.

     

    5.           Miscellaneous
Undertakings.  Debtor, at its sole cost and expense, agrees
to:

     

    (a)           pay
all reasonable expenses, including without limitation, reasonable attorneys’
fees and court costs to the fullest extent permitted by Governing Law,
actually

     

    (b)   incurred
by Secured Party in connection with the creation, perfection, preservation, or
enforcement of the Security Interest, the defense of the Collateral, or the
exercise by Secured Party of any of the rights, powers or remedies granted to
Secured Party under this Agreement, by law or otherwise; and

     


    
      
         


      

      
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    (c)           reimburse
Secured Party within ten (10) days of Secured Party’s demand for any reasonable
expense incurred by Secured Party pursuant to the foregoing authorization,
together with interest thereon at the default rate of interest set forth in the
Loan Agreement from the date that any such expense is incurred, until
reimbursed.

     

    6.           Secured
Party’s Rights Upon Event of Default.  Upon the occurrence of
an Event of Default and for so long as such Event of Default continues, then
Secured Party may, to the fullest extent permitted by and with such notice as
may be required by Governing Law (Debtor hereby waiving any such required notice
to the fullest extent permitted by Governing Law):

     

    (a)           enter
upon any property upon which the Collateral is located and take possession of,
assemble, collect, and move any or all of the Collateral and store any of the
Collateral at locations acceptable to Secured Party;

     

    (b)           require
Debtor to assemble any or all of the Collateral and make it available at a
mutually convenient place designated by Secured Party so as to permit Secured
Party to take possession of, move, or store, such Collateral;

     

    (c)           sell,
assign, or otherwise dispose of and deliver all or any part of the Collateral at
public or private sale, for cash or on credit, to a wholesaler, retailer or user
of each type of Collateral or at public auction;

     

    (d)           bid
and become purchaser at any public sale or auction of the
Collateral;

     

    (e)           perform
any of the Obligations, and apply any Collateral or the proceeds therefrom to
the payment of the
Obligations in such order, priority and manner as Secured Party in its sole
discretion may determine;

     

    (f)           consume,
sell or dispose of any of the Collateral as Secured Party deems appropriate for
the purpose of performing any or all of the Obligations;

     

    (g)           make
any compromise or settlement which Secured Party may deem desirable or proper
with respect to any of the Collateral or any controversies or disputes relating
to the Collateral, and release any of the Collateral and any persons liable on
any of the Collateral;

     

    (h)           endorse
and deliver evidences of ownership, and receive, enforce and collect by legal
action or otherwise all or any portion of the Collateral; and

     

    (i)           enforce,
adjust and receive payment or performance in connection with any insurance
claims, claims for breach of warranty, claims under any letters of
credit,

    instruments,
documents of title, chattel paper or contracts and similar matters concerning
any of the Collateral.

     


    
      
         


      

      
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    7.           No
Responsibility.  Debtor acknowledges that Secured Party has no
responsibility for, and does not assume any of, Debtor’s obligations or duties
under any agreement, instrument, or other contract or obligation relating to the
Collateral. Secured Party shall have no duty or obligation whatsoever to make or
give any presentments, demands for performance, notices of nonperformance,
notices of protest or notices of dishonor in connection with any of the
Collateral or to take any other action to preserve, protect or defend any of the
Collateral or to preserve any value or utility of any of the Collateral, except
to the extent required by Governing Law.

     

    8.           Notices.  Except
as otherwise required by Governing Law, all notices, requests, consents and
demands hereunder shall be in writing and delivered personally or by reputable
overnight carrier or U.S. first class mail, postage prepaid, at the addresses
set forth above or such other addresses as shall be subsequently designated in
writing, and shall be effective immediately, in the case of personal delivery,
twenty-four (24) hours after deposit with an overnight carrier, or forty-eight
(48) hours after deposit in the U.S. mail, in the manner described above. Notice
may also be delivered by confirmed electronic facsimile and shall be effective
upon receipt of confirmation.

     

    9.           Successors
and Assigns.  The terms of this Agreement shall be binding upon
and inure to the benefit of the successors-in-interest and permitted assigns of
Debtor and Secured Party; provided that Debtor may not assign its obligations
under this Agreement by contract, operation of law, or otherwise without the
prior written consent of Secured Party, which may be withheld in Secured Party’s
sole discretion.

     

    10.           Time.  Time
is an essential element to the performance of each term of this
Agreement.

     

    11.           Headings.  All
headings appearing in this Agreement are for convenience of reference only and
shall be disregarded in construing this Agreement.

     

    12.           Governing
Law.  This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Missouri (the “Governing
Law”).

     

    13.           Miscellaneous.  The
rights and remedies of Secured Party under this Agreement are cumulative, and no
exercise of any right or remedy shall preclude the exercise of any other right
or remedy or the later exercise of the same right or remedy.  Waivers
and approvals under this Agreement shall be in writing and unless otherwise
expressly stated, waivers and approvals shall apply only to the specific
circumstance addressed. Notwithstanding any other provision of this Agreement,
Secured Party shall not be deemed to have accepted any property other than cash
in satisfaction of any Obligation unless Secured Party shall make an express
written election of said remedy under Governing Law.

     

    14.           Amendment.  This
Agreement shall not be amended or modified in any way except by a written
instrument executed by Secured Party and Debtor.

     

    15.   Severability.  In
the event any one or more of the provisions contained in this Agreement shall
for any reason be held to be invalid, illegal or unenforceable in any respect
under Governing Law, such invalidity, illegality or unenforceability, at the
option of Secured Party, shall not affect any other provision of this Agreement,
but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. If the Security
Interest is invalid or unenforceable as to any portion of the Obligations or the
Collateral, all payments made on the Obligations, whether voluntary or under
foreclosure or other enforcement action or procedure, shall, at the election of
the Secured Party, be applied first to the full payment of that portion of the
Obligations not secured or not fully secured by the
Collateral.

     


    
      
         


      

      
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    16.           Secured
Party’s Duty of Care.  Secured Party’s duty of care with
respect to Collateral in its possession shall be deemed fulfilled if Secured
Party exercises ordinary care in physically safekeeping and preserving such
Collateral or, in the case of Collateral in the custody or possession of a
bailee or other third person, Secured Party exercises ordinary care in the
selection of the bailee or other third person.

     

    17.           Preservation
of Rights.  Secured Party shall not be obligated to preserve
any rights Debtor may have against other parties, to realize on the Collateral
at all or in any particular manner or order, or to apply any cash proceeds of
Collateral in any particular order of application, except as otherwise expressly
provided herein.

     

    18.           Financing
Statements.  Debtor authorizes Secured Party to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of Debtor where
permitted by law.  The description of collateral in the financing
statement may list “All Assets” or other description as selected by Secured
Party. A carbon, photographic or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.

     

    [SIGNATURE
PAGE TO FOLLOW]

     


    
      
         


      

      
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    IN
WITNESS WHEREOF, Debtor has caused this Agreement to be executed and delivered
to Secured Party as of the date first set forth above.

     

    
      	 
      	
              Elecsys
      Corporation, a Kansas corporation, Debtor

              By:     _________________________________                                                           

              Name: 
      ________________________________                                                                

              Title:  _________________________________                                                              

               

              Fax
      No.: 
      _______________________________                                                               

               

            


    

    


    
       



    


    



    
      
         


      

      
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